President Adopts Corker/Warner Plan To Wind Down Fannie And Freddie

The Corker/Warner plan calls for the end of Fannie Mae and Freddie Mac, though the institutions would be replaced with a guarantee system akin to the FDIC for banks. Credit: Daquella manera via Flickr

Sen. Bob Corker’s plan to wind down Fannie Mae and Freddie Mac picked up a presidential endorsement Tuesday. The Tennessee Republican has been working for more than a year with a Democrat Mark Warner of Virginia on a way to end the mortgage giants.

A bi-partisan group on the Senate Banking Committee has agreed to end Fannie and Freddie in five years and require the private sector to shoulder more of the risk when making home loans.

It makes sense that the White House would sign on to a plan that already has Republican and Democratic support, Corker says. But he suggests the President is unlikely to adopt his bill unchanged.

“My guess is they probably do want to push it a little bit in a direction that’s different from where we are. I think there’s still a debate to be had.”

While in Tennessee this week, Corker plans to discuss the overhaul of housing finance with bankers, realtors and home builders. They have expressed concerns that shutting down Fannie Mae and Freddie Mac – which buy up mortgages – could limit how many new loans are made.

Highlights:

The Housing Finance Reform and Taxpayer Protection Act (S. 1217):

• Mandates 10 percent capital, up front, for the system to protect taxpayers against future bailouts.
• Winds down Fannie Mae, Freddie Mac and the Federal Housing Finance Agency (FHFA) within five years of bill passage.
• Transfers appropriate utility duties and functions to the modernized, streamlined and accountable Federal Mortgage Insurance Corporation (FMIC), modeled in part after the FDIC.
• Replaces the failed “housing goals” of the past with a transparent and accountable market access fund that focuses on ensuring there is sufficient decent housing available. The fund is NOT paid for with tax dollars, but through a small FMIC user fee that only those who choose to use the system pay.
• Ensures institutions of all sizes have direct access to the secondary market so local banks and credit unions aren’t gobbled up by the mega banks when Fannie and Freddie are dissolved.